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Bank of Ireland’s First-Half Loss Narrows as Bad Loans Fall

Bank of Ireland Plc, the country’s biggest lender by assets, said its underlying pretax loss narrowed to 723 million euros ($1 billion) in the first half as a decline in bad loans offset rising funding costs.

The Dublin-based lender posted a 1.32 billion-euro loss for the same period last year, it said in a statement today. Bank of Ireland’s loan impairment charge declined to 842 million euros from 1.08 billion euros, while its net interest margin, the difference between its funding costs and average rate at which it lends, narrowed to 1.33 percentage points from 1.41 points.

While the bank still sees that group loan impairments peaked in 2009, Irish mortgage loan losses “will continue into 2012,” Richie Boucher, chief executive officer, told reporters. “We always anticipated” losses on the home-loans book “would be back-ended.”

Bank of Ireland is alone among the country’s six largest lenders in escaping government control, after the state agreed July 27 to sell a 34.9 percent stake to five investors, including Toronto-based Fairfax Financial Holdings Ltd. and WL Ross & Co., the New York-based investment firm. The bank was ordered to raise 5.2 billion euros of capital following stress tests in March.

Revenue Headwinds

“Bank of Ireland’s interim results reflected the predicted, largely funding-related, revenue headwinds,” said Emer Lang, an analyst with Dublin-based securities firm Davy in a note to clients. Funding costs remain depressed by “continuing competition for customer deposits and elevated deposit pricing, higher costs of wholesale funding” and government-guarantee fees, she said.

The lender swung into a net loss of 507 million euros for the first half from a 143 million-euro profit for the year-earlier period, which had partly benefited from gains from a subordinated debt exchange.

As part of a fundraising last month, the bank generated 1.9 billion euros from a rights offering, about 2 billion euros by inflicting losses on subordinated bondholders, and 1 billion euros selling contingent capital bonds to the government.

The bank has said it plans to raise a further 510 million euros through unspecified “further capital-raising measures.” The government intends to force losses on as much as 600 million euros of subordinated bonds remaining in the bank, a Finance Ministry spokesman said July 29.

Some 5.2 percent of the bank’s Irish mortgages were in arrears for more than 90 days at the end of June, rising from 4.2 percent at end of December, it said. Deposits were unchanged at 65 billion euros, while reliance on monetary authorities for funding fell by 2 billion euros to 29 billion euros, it said.

There has been no “material” change in the lender’s central bank funding since the end of June, Boucher said.

Bank of Ireland shares rose as much as 6.5 percent in Dublin trading and traded up 4.4 percent at 9.7 euro cents at 8:33 a.m.

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